Weekly Pay-TV Notes: Dish Netflix Deal And More

The pay-TV industry saw significant activity this week, with Dish Network announcing that it will offer the Netflix app on its Hopper set-top boxes. On a separate note, DirecTV secured FIFA rights in the Caribbean from 2015 through 2022. In an another development, Comcast will pay $50 million in a settlement to its customers in a class-action suit. In yet another, Time Warner Cable will raise its service fees and impose a $2.75 monthly surcharge for sports programming. On that note, we discuss below these developments related to the pay-TV companies over the past few days.

Dish Network

Dish Network (NASDAQ:DISH) will offer Netflix (NASDAQ: NFLX) streaming video through its Hopper set-top boxes. ^[1] Netflix subscribers with a DISH Hopper box will be able to stream Netflix’s original programming such as House of Cards directly to their televisions. This is a big move for both the companies.  Netflix said that many households subscribe to both Netflix and a traditional pay-TV service. For Dish, this deal will help it reduce the subscriber churn and lure some of Netflix’s subscribers and Netflix may see higher penetration in the U.S. households. It must be noted that HBO will also become available as a standalone service from April 2015. This move will lead to a head on competition between Netflix and HBO.

We estimate revenues of around $14.50 billion for Dish Network in 2014, with EPS of $1.76, which is in line with the market consensus of $1.52-$1.85, compiled by Thomson Reuters. We currently have a $67 price estimate for Dish Network, which is at around 5% discount to the current market price of $72.

DirecTV

DirecTV (NASDAQ:DTV) has acquired the exclusive media rights to FIFA events across all platforms from 2015 through 2022 in the Caribbean region. The rights includes the FIFA Women’s World Cup 2015, the 2018 FIFA World Cup, the FIFA Women’s World Cup 2019 and the 2022 FIFA World Cup, among other FIFA events. DirecTV currently offers coverage of international events such as the English Premier League in the region. ^[2] This is a good move for the satellite company as it can generate higher advertising revenues from these sporting events and also boost its penetration in the region.

We estimate gross revenues of around $33 billion for DirecTV in 2014, with EPS of $5.81, which is in line with the market consensus of $5.73-$6.10, compiled by Thomson Reuters. We currently have a $99 price estimate for DirecTV, which is around 15% ahead of the current market price.

Comcast

Comcast (NASDAQ:CMCSA) will pay $50 million towards a settlement in a decade long lawsuit in Philadelphia. The lawsuit was filed in 2003 stating that Comcast engaged in anticompetitive behavior by concentrating its cable systems in the broader Philadelphia area and making it difficult for competitors to expand in the region. The cable company charged higher prices and plantiffs sought $875 million initially. However in 2013, the U.S. Supreme Court ruled the case in Comcast’s favor and sent it back to federal district court. The two sides have now negotiated the settlement and Comcast will pay $15 in credits to the eligible subscribers in five counties in Philadelphia. ^[3]

We estimate revenues of about $68 billion for Comcast in 2014, with Non-GAAP EPS of $3.01, which is in line with the market consensus of $2.89-$3.24, compiled by Thomson Reuters. We currently have a $59 price estimate for Comcast, which is around 5% ahead of the current market price.

Time Warner Cable

Time Warner Cable (NYSE:TWC) said that it will raise its equipment and service fees in 2015 and it will also impose $2.75 monthly surcharge towards sports programming. ^[4] It must be noted that earlier this year, the company began charging for broadcasting amid rising cost of retransmission fees. The sports surcharge will be applied to all the subscribers irrespective of the customer’s subscription plan. While this move will upset some of the subscribers, it will help the satellite company offset a significant portion of costs associated with sports programming.

We estimate revenues of about $23 billion for Time Warner Cable in 2014, with Non-GAAP EPS of $7.72, which is in line with the market consensus of $7.45-$8.13, compiled by Thomson Reuters. We currently have a $123 price estimate for Time Warner Cable, which is at about 15% discount to the current market price.

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1. DISH First Major US Pay-TV Provider to Integrate Netflix, Dish Network’s Press Release, Dec 17, 2014 [↩]
2. DirecTV nabs FIFA broadcast rights across Caribbean, RapidTVNews, Dec 17, 2014 [↩]
3. Comcast to pay $50 million in class-action suit, Philly, Dec 13, 2014 [↩]
4. Time Warner rates going up, WHEC, Dec 18, 2014 [↩]